N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 3-4.3

Current through Register Vol. 46, No. 39, September 25, 2024

Section 3-4.3 - Investment capital identification procedures

(Tax Law, section 208(5)(a)(v))

(a) Identification requirement. To qualify as investment capital, an investment in stock must be clearly identified in the corporation's records as stock held for investment in the same manner as required under IRC section 1236(a)(1) for the stock of a dealer in securities (whether or not the corporation is a dealer in securities). The identification requirements described in this section do not apply to constitutionally protected investment capital.

(b) Dealers in Securities. In the case of a corporation that is a dealer in securities subject to IRC section 1236, the identification requirement in subparagraph (v) of paragraph (1) of subdivision (a) of section 3-4.1 of this Subpart will be satisfied only if the stocks are clearly identified in the corporation's records as stock held for investment under IRC section 1236(a)(1). However, any stock purchased by a corporation that is a dealer in securities pursuant to an option will meet the identification requirement only if the option also is clearly identified in the corporation's records as held for investment under IRC section 1236(a)(1). Identification under any other IRC section, including IRC section 475, or under any section of New York law or regulation, will not satisfy the identification requirement.

(c) All corporations other than dealers in securities. In the case of corporations that are not dealers in securities subject to IRC section 1236, the identification requirement in subparagraph (v) of paragraph (1) of subdivision (a) of section 3-4.1 of this Subpart will be satisfied only if the stocks are recorded in an account that:

(1) is maintained specifically for purposes of identifying such stocks as held for investment for investment capital purposes;

(2) is separate from any account maintained for stock held for sale to customers; and

(3) is maintained in a separate account in the corporation's books of account for recordkeeping purposes; or in a separate depository account maintained by a clearing company as nominee for the corporation; and

(4) discloses:

(i) the name of the stock;

(ii) the identifying number of the stock according to either the Committee on Uniform Securities Identification Procedures (CUSIP) or the CUSIP International Numbering System (CINS), as appropriate; and

(iii) if the stock is sold, the date of the sale, the number of shares sold in the sale, and the price at which the stock or the option, respectively, is sold; and

(5) is established in such a manner as to readily identify the length of time that the stock is owned.

(d)

(1) Except as otherwise provided in this subdivision, for corporations other than dealers in securities, the stocks must be identified in the manner described in subdivision (c) of this section before:

(i) October 1, 2015, for stocks acquired prior to October 1, 2015; or

(ii) the close of the day on which the stock was acquired for stock acquired on or after October 1, 2015.

(2) Under the circumstances described in subparagraphs (i) and (ii) of this paragraph that occur on or after October 1, 2015, the corporation must identify such stocks by the additional identification period end date, which is the 90^th day after the measurement date specified in such subparagraphs. Only stocks owned by the corporation on the additional identification period end date will be eligible for identification under this clause.

(i) In the case of a corporation that first becomes subject to tax under article 9-A on or after October 1, 2015, the measurement date is the date that the corporation begins doing business, employing capital, owning or leasing property or maintaining an office in New York State. However, in the case of a corporation that becomes subject to tax solely because it is deriving receipts from activity in New York State, the measurement date is the date on which the corporation first has receipts within New York State of $1 million or more. In the case of a unitary group that becomes subject to tax solely because it is deriving receipts from activity in New York State, the measurement date for every corporation included in the unitary group as of the additional identification period end date is the date on which the unitary group in the aggregate first has receipts within New York State of $1 million or more.

(ii) In the case of a corporation that is not a taxpayer in New York State, has not been included in a combined report previously, and first meets the capital stock requirement to be included in a combined report with a taxpayer under section 210-C(2)(a) on or after October 1, 2015, the measurement date for that corporation is the day that corporation first meets the capital stock requirement to be included in a combined report.

(e) For stocks purchased pursuant to an option, the identification requirements and procedures specified in this section should be read as if the requirements and procedures referenced the option in addition to the stock.

(f) In the case of a combined report, each member of the combined group must follow the identification requirements and procedures specified in this section for investments in stock owned by that corporation.

(g) If a corporation is a partner in a partnership and the corporation is using the aggregate method to compute its tax, the partnership must follow the identification requirements and procedures specified in this section for investments in stock owned by the partnership to qualify as investment capital of the corporate partner. If, on or after October 1, 2015, a corporation becomes a partner in a partnership that is not a dealer for purposes of IRC section 1236, and the partnership, prior to the date the corporation becomes a partner, had not identified any stock as investment capital using the requirements and procedures specified in this section, only stock acquired by the partnership on or after the date the corporation becomes a partner may potentially qualify as investment capital.

N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 3-4.3

Adopted New York State Register December 27, 2023/Volume XLV, Issue 52, eff. 12/27/2023